Rising Demand in the Global Aerospace and Defense Industry

Investments by airlines and governments in new aircraft and related technologies have resulted in surging demand in the global aerospace industry.

This development marks a sharp change from a few years ago. When COVID-19 hit, the resulting shutdowns hammered passenger travel and aircraft production.

Aerospace companies have seen growth for several reasons, including:

• A large backlog of commercial aircraft orders, which could take years to fulfill.

• A worldwide surge in defense spending, with makers of aircraft and munitions among those benefiting.

• A sustained demand for fuel-efficient technology, sparking interest in next-gen parts and components.

Although the industry still faces challenges and companies must execute effectively to keep up with demand, we remain confident that its key growth drivers are robust and perhaps sustainable. This could support higher earnings growth potential for several years.

What Factors Are Driving Demand in the Aerospace Industry?

Commercial Aircraft Order Backlog

Globally, the aerospace industry has an estimated backlog of 17,000 orders for new commercial aircraft.¹

At current production rates, clearing this backlog may take over a decade, but actual results will rely on execution, supply chains and demand conditions.²

Original equipment manufacturers, such as Airbus and Boeing, are ramping up production to meet the need. But the industry continues to struggle with supply chain issues and a shortage of skilled workers. Airbus, for example, has cited delays with its engine supplier.³

Companies like Embraer have increased output after investing in supply chain management and production.

“These efforts have already started to pay off,” Embraer CEO Francisco Gomes Neto said. “Aircraft deliveries increased by 16% and average shortage decreased by 25% compared to last year.”⁴

Global Defense Spending and Capacity Expansion

Defense budgets are expanding in Western Europe, Japan and other regions in response to various pressures, including threats from Russia and worries about less support from the U.S.

Worldwide, defense expenditures rose by 9% in 2024, marking one of the biggest jumps in decades.⁵

We think higher spending could benefit large contractors like BAE Aerospace, as well as firms specializing in critical components and systems, such as Curtiss-Wright and Heico.

Aircraft Maintenance, Repair and Overhaul (MRO) Demand

Older aircraft are staying in service longer due to the backlog of orders. The average age of aircraft has now reached about 15 years, setting a record.⁶

This has boosted demand for companies involved in aftermarket maintenance, repair and overhaul, helping keep older jets flying.

Howmet Aerospace, for example, has noted higher aftermarket demand for its turbine blades used in aircraft engines.⁷ These parts are exposed to extremely high temperatures and, as a result, require periodic replacement.

Continuing Focus on Fuel Efficiency

To lower fuel expenses, airlines are investing in new parts and components crafted from advanced composites — lightweight materials that are also very strong.

Lighter aircraft require less fuel, and that’s critical for airlines. Fuel often makes up 25% to 30% of their costs.⁸

“We observe strong demand for our aircraft, driven by both growth and fleet replacements as airlines turn to latest generation aircraft offering around 25% fuel burn efficiency gain,” Airbus CEO Guillaume Faury said.⁹

Key Investment Considerations in Aerospace and Defense

While rising demand is significant, it doesn’t automatically lead to attractive returns. We believe that achieving attractive returns relies on disciplined pricing, effective capital allocation and solid execution.

Like many industrial sectors, aerospace is cyclical and capital-intensive, with long production cycles that can amplify both risks and opportunities.

In such situations, active management becomes even more essential. We focus on companies we believe are well-managed, financially resilient and positioned for more predictable earnings over time. Our team sees several aerospace firms that we believe meet these standards. Given their significant order backlogs, we believe there could be strong demand for their products for the foreseeable future.